India's Sensex Drops Most in Three Weeks, Led by Larsen & Toubro

Indian shares dropped as industrial-equipment makers declined ahead of a factory output data that some investors gauged would fall short of estimates. Lenders also fell on concerns that farm-credit waivers by states would add to bad loans in the banking system.

“Investors may be positioning themselves for a bad set of manufacturing data later in the day and that’s reflecting in the capital-goods shares,” Ashish Shah, head of equity at Mumbai-based A.C. Choksi Share Brokers Pvt., said on phone. The market is under “some selling pressure” after its rally so far this year, he said.

India’s index of industrial production rose 2.7 percent in April versus a year earlier, according to estimates compiled by Bloomberg. The index is likely to miss that forecast and rise 2.3 percent, according to Bloomberg Intelligence.

Ten of the 13 sector gauges compiled by BSE Ltd. retreated, led by the S&P BSE Capital Goods Index’s 1.6 percent drop. The S&P BSE Information Technology Index rebounded from a fall of more than 1 percent to close 0.4 percent higher, the best performer.

A gauge of lenders also fell 1 percent after the Maharashtra government announced that it will waive farm credits, adding to investor concerns of a further increase in bad loans at banks, already the highest among major economies globally. Uttar Pradesh, the nation’s most populous state, made a similar announcement in April.

“Farm loan waivers have created negative sentiments, mainly for banks and financial companies, which have largest weights in indexes,” said Sanjay Sinha, founder of Mumbai-based Citrus Advisors. Credit discipline suffers and these measures are also “economically regressive,” he said.

India’s Sensex and Nifty indexes have both rallied 17 percent in 2017, the best-performing gauges among major Asian markets.